Vietnam's central bank says not cutting off dollar loans

Thanh Nien News

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An undated photo of US dollar notes running through a counter at a bank in Ho Chi Minh City. Photo: Dao Ngoc Thach An undated photo of US dollar notes running through a counter at a bank in Ho Chi Minh City. Photo: Dao Ngoc Thach

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The State Bank of Vietnam has denied claims that it is curbing dollar lending across the board, saying those who have "justifiable needs" will still be given access to loans in foreign currencies.
Bui Quoc Dung, chief of the central bank's monetary policy department, was responding to questions about a new rule on lending activities in foreign currencies that took effect on Thursday in an interview published on the government's website.
According to the rule, local banks and subsidiaries of foreign banks can only provide foreign-currency loans to importers and businesses with overseas investments.
Previously, eligible exporters could take out dollar loans and have the money exchanged to the local currency to cover locally incurred expenditures. The rationale was that dollar debts were often cheaper than dong loans. 
The new rule has explicitly banned that practice, which Dung said was a form of "support" given to local businesses during tough economic times. 
Now that the economy has recovered, it is necessary to rein in such loans to prevent dollarization, the official said, adding that credit growth is now also high. 
Loans in the banking sector grew 17.17 percent last year, the highest since 2012, according to the central bank's figures.
The new rule will not affect much on businesses, as the central bank's statistics showed that not many businesses took out foreign loans for local uses these days, given the gap between the interest rates of dollar and dong loans "is no longer too big," Dung said.
Before the rule took effect, most local banks offered dollar loans at interest rates of 2.8-6.2 percent a year, compared to 6-11 percent for dong loans, according to recent figures released by the central bank.
Pham Hong Hai, CEO of HSBC Vietnam, told Thanh Nien the central bank's latest move is "necessary," even though it means that borrowing costs for some businesses will increase, as they will have to turn to the dong.
Last year the central bank scrapped ceiling interest rates on dollar deposits, so it is time it limited lending to ease pressure on local banks, ensure dollar liquidity and prevent dollarization, Hai said.
The central bank set a mid-point rate at VND21,850 per dollar on Friday, compared to VND21,857 on Thursday. In Vietnam, banks are allowed to trade dollar within 3 percent below or above the reference rate.

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